U.S. regulators, including the Federal Reserve, have advised Citigroup Inc (NYSE:C) to immediately change its approach to assessing default risks in derivative transactions.

The directives present potential obstacles for CEO Jane Fraser as she strives to revitalize the bank’s fortunes.

The Federal Reserve issued three notices to Citi in the latter part of the previous year, specifically focusing on determining default risk by counterparties in derivative transactions.

Citi’s internal audit unit revealed additional work was necessary to address issues highlighted by regulators, as detailed in an email seen by Reuters.

The internal audit raised concerns about the inadequacy of risk management improvements across the bank and the failure to meet requirements for comprehensive reporting of risks to the board and senior management.

Citi has set a target date of July 31, 2024, to clear the audit, Reuters noted, citing one of the sources.

In addition, the Office of the Comptroller of the Currency found shortcomings in Citi’s progress on data integrity during exams in September and October.

These regulatory challenges compound existing issues stemming from 2020 consent orders initiated by the Fed and the OCC, directing Citi to rectify widespread deficiencies in risk management, data governance, and internal controls.

The repercussions of these notices and challenges have not been reported, and their impact on Citi’s efforts to resolve regulatory problems remains unclear.

In response, Citi emphasized its commitment to meeting regulatory expectations, acknowledging the ongoing effort to simplify and modernize the bank.

However, the complexity of the task faced by CEO Jane Fraser underscores the challenges inherent in the bank’s extensive overhaul to enhance profitability and shares, which have lagged behind peers.

Price Action: C shares 1.35% at $53.26 during the premarket session on the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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